Law of demand:
Definition and Explanation of the Law:
We have stated earlier that demand for a commodity is related to price per unit of time. It is the experience of ever consumer that when the prices of the commodities and when the prices rise, the quantity demanded decreases. There is, thus, inverse relationship between the price of the product and the quantity demanded. The economists have named this inverse relationship between demand and price as law of demand.
Statement of the Law:
Some well-known statements of the law of demand are as under:
According to prof. Samuelson:
“The law of demand states that people will buy more at lower prices and buy less at higher prices things remaining the same”.
“Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices”.
“Other things remaining the same, the quantity demanded increases with ever fail in the price and decreases with every rise in the prices”.
In simple we can say that when the price of a commodity rises, people buy less of that commodity and when the price falls, people buy more of it ceteris paribus (other things remaining the same). Or we can say that the quantity varies inversely with its price. There is no doubt that demand responds to price in the reverse direction but it has got no uniform relation between them. If the price of a commodity falls by 1%, it is not necessary that demand may be also increase by 1%.The demand can increase by 15,2%,10%,15%, as the situation demands.
The functional relationship between demanded and the price of the commodity can be expressed in simple mathematical language as under;
Formula for Law of Demand:
Qdx =A quantity demanded of commodity x.
F= a function of independent variables contained within the parenthesis.
Px = price of commodities x.
Po= price of the other commodities.
T=Taste of the household.
M= purchasing power of the typical consumer
If M, po, and T are kept constant then the demand function can also be symbolized as under:
Qdx= f(px) ceteris paribus
Ceteris Paribus. In economics, the term is used as shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable.